Additional MEV Analysis
Last week, we featured a post analyzing arbitrage MEV in Ethereum and the impact of larger blocks on larger MEV opportunities. That analysis examined MEV relative to token transfer transaction counts because it was a good proxy for DeFi activity, but it acknowledged that actual swap activity would be a better metric.
In this post, we’ll recreate the analysis from the original post, and, using additional data on total swap transactions by block we’ll refine the analysis further.
Inspecting 1349572 instances of arbitrage transactions
Note: In keeping with the original data analysis, We discard the arbitrages with profit taken in lesser known and illiquid tokens just as the original analysis did as such arbitrages represent a tiny fraction of the total arbitrage volume. We’ll also be plotting median values for which we have at least 5 samples in order to help us ignore some of the noisier outliers.
The above three plots should look very similar (in fact identical) to the original analysis. Below, we go one step further and plot against the block size in terms of swap transaction counts.
Although it’s an iterative improvement, the trend is much clearer and the tail much cleaner. As the number of swap transactions in a block increases from around 10-20 with a median gross block profit of about $50, we can see the stronger than linear growth up to $250 at 56 swap transactions per block, and then finally as the tail becomes more inconsistent, we still see a general trend towards more and more MEV profit as the number of swaps climbs.
Bonus Evaluation by Gas Usage
One alternative to looking at transaction counts, is to look at block complexity in terms of gas usage. In general, blocks which use more gas, should in theory, contain more MEV opportunities. Of course, as we saw in the analysis above, the raw block size is actually not a perfect metric for predicting MEV, but it’s an interesting analysis none-the-less.
Above, we see a general trend upwards with gas used in blocks, but, we see two very curious dips around blocks 12.5M and 15M. For those astute readers with an in depth knowledge of Ethereum’s history, they might recognize 12.5M and 15M as the block gas gap just before the Berlin Hard Fork, and the London Hard Fork respectively. One likely theory, is that as blocks neared this gas limit, higher gas prices would have made arbitrage less profitable, and therefore less likely to occur. We can filter our dataset to consider only blocks after the London Hard Fork (block 12,965,000) to see if our hypothesis is correct.
Indeed, when we exclude blocks before the London Hard Fork, we can observe that the pattern for increasing block size correlating with increasing MEV profits is now consistent and uninterrupted. Although the analysis based on swap transactions paints a clearer picture, analyzing MEV by gas usage still shows a definite trend and demonstrates yet another way to analyze the same data set.